How To Trade Cryptocurrencies During Volatile Times: Opportunities And Risk Management Strategies

Approaches that you can take when investing in a fast-changing market.

Last Updated July 23rd 2021
5 Min Read

Volatility plays a key role in the nature of cryptocurrencies. Trading cryptocurrencies in volatile times can be very rewarding and very risky at the same time because you might put your money at risk by investing in a cryptocurrency that could potentially decrease in value. 

If we look at the history of most cryptocurrencies, we can observe the price fluctuation over time. For instance, big cryptocurrencies such as Bitcoin are prone to big changes in the price. 

Volatility can be caused by different variables, such as speculation, economic crises, large transactions and various government decisions (regulations). It is no surprise that some traders favour a volatile market because investments can be very rewarding even if each investment entails risk. 

As such, there are some advantages that high volatility offers to traders, as well as different ways to deal with the high risk.

Advantages of Trading Cryptocurrencies During Volatile Times

Besides the fact that trading in volatile times can be very profitable, there are other ways that high volatility in cryptocurrencies can benefit traders. The most notable advantages are:

1. Liquidity

One of the main advantages of trading cryptocurrencies in high volatile markets is their liquidity. At the moment the total cryptocurrency market cap is $1.8 trillion.

Cryptocurrencies can be purchased or sold with ease when the price is likely to change quickly, so if you are willing to risk for potentially lucrative investments, then the crypto market’s liquidity offers you that.

2. Trading hours

Unlike stocks, bonds, or other kinds of investment, the crypto market is never closed and works 24/7.

This allows you to engage in trades whenever you want. Additionally, because of this advantage, you should not fear being stagnated in a trade because of its working hours, especially in volatile markets. Hence, the working hours of the crypto market are an important advantage.

3. Two-way market

Last but not least, one of the biggest advantages that cryptocurrencies have in volatile times is their two-way market. Traders are able to buy and sell cryptocurrencies with ease whenever they want, in a bull or in a bear run.

Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

Risk Management Strategies For Trading Cryptocurrencies In Volatile Times

There are some ways that you can manage the high risk that comes when trading cryptocurrencies in volatile times. The most notable ones are:

Researching about the cryptocurrency you are going to invest in

You should know background information on what you are investing in. Especially in volatile times.

You should be well informed about the history and future plans of the cryptocurrency you decide to buy. Furthermore, you should constantly follow any changes in the price of the cryptocurrency to understand the pattern that the price is following.

To conclude, investments should be rational and monitored in a continuous manner.

Stop Loss Market Order

Whenever you invest in cryptocurrencies, you have the option to use Stop Loss Orders, which means that you can set a price at which you will sell your asset in order to minimize losses.

This is important in volatile times because there could be incorrect price quotes displayed due to the fast-changing price. Failure to Stop Loss Market Orders can cause slippage, which is the trade of a cryptocurrency at an initially-not-agreed price. 

Be Prepared For Any Outcome

You should be prepared for the possibility of drastic price reductions.

Experienced investors advice investing as much as you can afford to lose, in order to deal with potential losses easily. Additionally, even if the price of a cryptocurrency you invested in decreases drastically, you should not panic because the price can rise again even higher in the long run.

Liquidity, trading hours and the two-way nature of cryptocurrencies are what make the crypto market attractive to traders. Cryptocurrencies are on the rise and offer many profit opportunities for traders. 

It should be noted that the advantages of trading cryptocurrencies and the ways to manage risk during volatile times are much greater in number than what is said in this article.

If you want to know more about trading and investing in cryptocurrencies take a look at our voluminous article section.

Key Points

  • Cryptocurrencies are characterized by high volatility.
  • Volatility can be caused by different variables, such as speculation, economic crises, large transactions and various government decisions (regulations).
  • Some of the biggest advantages of trading cryptocurrencies during volatile times is their liquidity, the trading hours that cryptocurrencies work (24h/7), and the easiness of buying and selling cryptocurrencies at any time.
  • Trading in volatile times is risky, but there are some ways that this risk can be managed.
  • Some of the risk management strategies you can use are carefully researching the cryptocurrency you want to invest in, using Stop Loss Market Order when trading to avoid slippage, and being prepared financially and mentally for any possible outcome out of your investment.

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Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

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An Overall Look At The Cryptocurrency Market - What To Expect?

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